To clarify the main point is it is wrong but because it affects old people no one wants to crusade against it. It has the perfect moral excuse to hide behind.
To clarify the main point is it is wrong but because it affects old people no one wants to crusade against it. It has the perfect moral excuse to hide behind.
I've never heard of the tie between PE and pensions until today.
I find it very hard to believe that if pensions didn't exist, nobody would have come along and exploited the same loopholes.
I've been thinking about that comment and I don't think it makes sense. When it comes down to it, PE is really just doing two things:
1. Taking advantage of a pricing inefficiency; and/or
2. Using local monopolies, inelastic demand and regulation to jack up prices.
But what powers PE is the LBO (leveraged buyout). That is, you buy csome company with borrowed money and then you borrow against the assets of that company to repay your original loan.. That... shouldn't be allowed. Obviously that company is saddled with debt and it's usually structured to explode at some future point when the buyers won't actually own it anymore. I think of it like subprime lending in a way.
Now passive funds kind of have to buy sufficiently large companies. This has been an issue with the SpaceX IPO because SpaceX is doing a small float (~5%) and NASDAQ has changed the rules to essentially force passive funds to buy SpaceX where up until now that wasn't the case unless at least 25% of the company was available to buy. It's so nakedly corrupt.
Anyway, if a LBOed company saddled with complicated debt gets re-listed it kind of has a captive market of buyers with passive funds.
So going back to (1) there is long historical precedent for pricing inefficiencies. I'm speaking about the corporate raiders of the 1980s. The movie Wall Street was about this era (well that and insider trading). Essentially ailing companies would be trading below their book value. The book value was simply the value of assets (real estate, etc) so you could buy the company, sell it for parts and make a profit. All the lost jobs be damned.
The companies that tend to get targeted for PE own real estate. This has been a competitive advantage because yet other rent-seekers can't exploit them by jacking up rents. But real estate is an easy asset to sell to pay back your LBO and you can even split the real estate into a separate company and lease it back from that company. It's just financial hocus pocus.
Sort of off topic but I like HN and comments like yours for educating me about subjects I would otherwise know nothing about. Thank you
Please read a book about these things. HN commentary on any form of trending issue (of which PE acquisition is right now in various other social media) tends to be more about the commenter's own value judgement than any form of disciplined analysis. There are many case studies on LBOs and other forms of corporate turnarounds and you won't have social media pageantry affecting your thoughts.
Private Equity/Capital IMO is a pretty fascinating topic and I have some nuanced thoughts on it but this isn't the forum to have that conversation. There are great books out there on it though and I highly suggest reading them.